Question

Forsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. During the year, the company produced and sold 10,000 units at a price of $153 per unit. Its standard cost per unit produced is $123 and its selling and administrative expenses totaled $244,000. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year: Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Fixed overhead budget variance Fixed overhead volume variance $ 8,300F $12,000 $ 5,300 $6,280 F $ 4,300F $13,00 F Required: 1. When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much? 2. Prepare an income statement for the year. Complete this question by entering your answers in the tabs below. Required 1 Required 2 When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much?

Answer 1

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Forsyth Company
Total variance	Amount $
Material Price Variance	(8,300.00)	Favorable
Material Quantity Variance	12,000.00	Unfavorable
Labor Rate Variance	5,300.00	Unfavorable
Labor Efficiency Variance	(6,200.00)	Favorable
Fixed overhead Budget variance	(4,300.00)	Favorable
Fixed overhead volume variance	(13,800.00)	Favorable
Total variance for the year	(15,300.00)	Favorable	F
Answer 1
Total variance for the year is the Favorable so Cost of goods sold will decrease by $ 15,300.
Sale Value	Amount $
Units	10,000.00	A
Sell price	153.00	B
Sale Value	1,530,000.00	C=A*B
Standard cost of goods sold	Amount $
Units	10,000.00	A
Standard cost	123.00	D
Standard cost of goods sold	1,230,000.00	E=A*D
Answer 2
Income statement	Amount $
Sales	1,530,000.00	See C
Standard cost of goods sold	1,230,000.00	See E
Total variance for the year	(15,300.00)	See F
Total cost of goods sold	1,214,700.00	G=E+F
Gross profit	315,300.00	H=C-G
Selling & admin expenses	244,000.00	I
Net operating income	71,300.00	J=H-I